Bob Paulson: 00:03

And so the only way to develop a CPT or a procedure code that will allow doctors to get paid in the office was to go get a new code. And we at the time didn't have the clinical data to meet the requirements either for coding or coverage. That's the thing that you always have to keep in mind is, it's one thing to have enough data for either FDA clearance or getting a CPT code, but then you have to have enough data to support coverage. And so we started this process back in 2022 of developing the portfolio that would satisfy all three of those.

Narrator: 00:44

Welcome to Medsider, where you can learn from the brightest founders and CEOs in medical devices and health technology. Join tens of thousands of ambitious doers as we unpack the insights, tactics, and secrets behind the most successful life science startups in the world. Now here's your host, Scott Nelson.

Scott Nelson: 01:04

Hey, everyone, in this episode of Medsider, we sat down with Bob Paulson, President and CEO of Sonex Health. Sonex's UltraGuide CTR device is a minimally invasive technology that enables ultrasound guided carpal tunnel release procedures to be performed outside the surgical suite using local anesthesia. Before joining Sonex, Bob led multiple venture backed medical device companies through commercialization, including Nxthera, acquired by Boston Scientific, Restore Medical, acquired by Medtronic, and VentureMed Group. Earlier in his career, he held senior leadership roles at Medtronic, Advanced Bionics, and Endocardial Solutions, which was acquired by St. Jude Medical.

Scott Nelson: 01:39

Here are a few topics we explored in this conversation. First, what it really takes to establish reimbursement for a new medical technology. Second, how to drive adoption when your therapy requires physicians to change how they practice. Third, evaluating investors beyond the term sheet. And last, how does your most likely exit path shape the company you build from day one?

Scott Nelson: 01:58

Before we dive into the full episode, if you're a Medtech founder or CEO preparing to raise capital, you should check out the Medsider fundraising cohort. This four week live workshop combines small group sessions with real time feedback to help you sharpen your investor story, build a targeted investor pipeline, and run a focused fundraising sprint instead of a never ending slog. Over the month, you'll walk away with an investor ready narrative and deck, outreach scripts that actually get responses, a refreshed LinkedIn profile, a simple content plan that keeps you on investors' radar, and a repeatable system for running your raise. You can join the waitlist at medsider.com/fundraisingcohort. Again, that's medsider.com/fundraisingcohort. Alright. Let's get to the interview.

Scott Nelson: 02:43

Alright, Bob. Welcome back to Medsider Radio.

Bob Paulson: 02:45

Thank you, Scott. Good to be here.

Scott Nelson: 02:47

I know we were chatting about this before we hit the record, but been almost like half a decade, right? It's showing our age, both of our ages.

Bob Paulson: 02:54

Exactly. A lot of water under the bridge.

Scott Nelson: 02:56

No doubt. A lot of lessons learned too. But this time around, we're focusing mostly on Sonex, the company that you've been focused on several years now. And so before we get there though, for those that didn't listen to our previous interview and are maybe loosely familiar with your name but don't know a lot about your background, let's start there. Give us like the one to two minute kind of elevator style bio on your experience in the device space over the past couple decades.

Bob Paulson: 03:20

Well, so I started my career actually at General Mills doing consumer packaged goods stuff, then had to scratch the itch, go to law school, went back to law school, practiced corporate law for several years, went back to General Mills, and then in the early 90s got the opportunity to go over to Medtronic just after Bill George became CEO. So I spent about seven years at Medtronic doing corporate development, corporate strategy. At Medtronic did a bunch of acquisitions back in the late 90s. One of them was spine Company and I had the chance to do that deal, lead the integration, and then go out and run the surgical navigation business out in Boulder.

Bob Paulson: 03:57

Did that for two or three years and just never lost the urge to step over to the other side and do the work for a venture backed startup. So first went to Advanced Bionics in Valencia, and then from there to Endocardial Solutions here in The Twin Cities, and then did a company called Restore Medical, which was in the ENT space. And after we sold that to Medtronic, that was followed by NxThera, which was at a vapor ablation technology to treat prostate conditions beginning with BPH. We sold that to Boston Scientific in 2018. I helped a friend with a vascular company for a couple years and then joined Sonex Health back in late twenty twenty one.

Bob Paulson: 04:40

I'd known one of the founders for quite a while and it was the investor who had come in, was looking for an experienced somebody who'd been there done a few times to come in and help grow the company. And we actually had already, Darryl had already hired our commercial team leadership from NxThera to come over here to Sonex because it was another office based disruptive technology taking a procedure out of an OR suite moving into the office. So kind of put the band back together here at Sonex, and and we've been making great progress here the last four and a half years.

Scott Nelson: 05:14

Yeah. And we're reporting this in, call it mid let's call it mid two thousand twenty six. You've been at it for almost almost five years now. It looks based on, got your LinkedIn profile in front of me here. We'll definitely link to that in the full write up on Medsider. But for those that aren't familiar with Sonex, we're at a July 4 get together and I know very little about this company. What's the technology? If I'm a patient, how do I get access to it? Like tell me more about it.

Bob Paulson: 05:38

So Sonex Health was founded by two Mayo physicians, both of whom were sports med docs, PM&R, who had a lot of expertise in ultrasound, and they were seeing a lot of patients in their clinic post carpal tunnel procedures. So upper extremity, extremity neuropathies and entrapments where the traditional approach to relieve the impingement is to make a surgical incision, do a cut down to wherever the impingement's occurring, cut the impingement and then stitch the patients back up. The biggest challenge with all these procedures is the wound healing and the difficulty patients experience, and because of where the location is, it impedes your ability to return activities and work.

Bob Paulson: 06:19

So of all of those various impingements that are out there, carpal tunnel syndrome is the largest of those markets, and the focus of the company was to develop a device that could be utilized in conjunction with ultrasound to take procedures out of the OR, move it into a procedure room, whether that's an office, an ASC, or a hospital procedure room, but do it in a percutaneous or minimally invasive approach that allows the patients to return to activities in days versus weeks or months. And so we're now at the first commercial procedures with our device was done in 2018, and we now have treated over 55,000 patients.

Bob Paulson: 06:58

So in summary, the opportunity is that eighty percent of the patients diagnosed with carpal tunnel have been told it's severe enough, you need a procedure, you need surgery, are choosing to avoid surgery because they can't afford to be out of work for weeks or months while they recover. And so the opportunity here is in performing this minimally invasive approach that's uses only local anesthesia, you close it with a pressure bandage or a Steri Strip, no need for sutures and a very small four to six millimeter incision in the wrist. And patients are back to activities in two to three days, back to work in three to five days as opposed to several weeks or months that's common following a surgical carpal tunnel procedure.

Scott Nelson: 07:42

Never ceases to amaze me, like some of these massive problems, right? Carpal tunnel, I think almost everyone that's listening to this has either maybe has experienced a mild form of it or some sort of like, something adjacent to it.

Bob Paulson: 07:52

The CEO has had a simultaneous bilateral procedure. Yeah.

Scott Nelson: 07:57

It's terrible. I mean, right? I don't know. It's horrible. And everyone I think is probably nodding their head. Like this is awful, but yet not a lot of great solutions until something like Sonex comes along. In terms of the technology itself, like what's actually happening? So it's obviously incredibly minimally invasive. Sounds like the recovery is pretty quick, but like what's the physician actually doing? Tell me more a little bit about the science.

Bob Paulson: 08:18

So the device that we developed is a device that's optimized for ultrasound and for the anatomy, for ultrasound, for a local procedure that can be done with local anesthesia. So the device is actually, it's a very, like most it's complex but yeah it's very simple right so it's got so four to six millimeter incision in the wrist the doctor's holding an ultrasound transducer in one hand so they can visualize the entirety of the anatomy and then the device is inserted through that four to six millimeter incision in the wrist so you're staying away from the palm of the hand which is where a lot of the difficulty comes if you do a surgical approach. Navigating under real time visualization the device through the carpal tunnel and under ultrasound you can see all the nerves. You can see bones, you see ligaments, tissues, nerve, most importantly you see the nerves, right? And that's the biggest thing you need to avoid.

Bob Paulson: 09:13

The critical anatomy in the carpal tunnel is the median nerve on one hand, or one part of the hand, and the ulnar artery that's coming down from the upper arm and the other part, and both of those converge in the carpal tunnel, and so the device has integrated into the shaft of the device our two balloons that are inflated with saline. You can visualize that under ultrasound as well as the fact that as those balloons are inflated it creates additional safe space in the carpal tunnel. There is a recessed blade in the tip of the device that within the safety mechanism so the design cannot be deployed until the balloons are inflated.

Bob Paulson: 09:53

That way you know it's safe. The doctor can both visualize the placement of the shaft, they can see the balloons that are echogenic, and then the blades deployed and you're distal to where the transverse carpal ligament the issue is the transverse carpal ligaments are rubbing on the median nerve and entrapping it, that's what's causing the pain, Once you're underneath the TCL, you can visualize that ultrasound, the blade is deployed, and then with an actuator, a thumb actuator on the device, the blade is pulled back along a track in the device and cuts the TCL.

Bob Paulson: 10:27

The doctor can then both visually and tactically confirm that they have a complete release. The device is removed, Steri Strips applied, pressure bandage, and patient walks out and drives himself home if they want to.

Scott Nelson: 10:41

Okay, that's true. And I'm on the website now and there's some really helpful videos if you're listening to this and curious to learn a little bit more about kind of what's actually happening during the procedure. But like you mentioned earlier, it's simple to the patient, but pretty complex in terms of like how you've engineered the device, it sounds like. Yep. Yeah.

Scott Nelson: 10:58

You mentioned over 50,000 procedures now performed. Kind of give us a high level overview of where the company's at. I mean, is it full on like global commercialization? Are there geographies that you've prioritized? Like where's the company at as of mid 2026?

Bob Paulson: 11:11

We're US only by design. So we're commercial. As I said, we've done 55,000 procedures to date and that's been accelerating over the past several years. The biggest challenge the company faced when I joined the company was that physicians were billing the procedure using an existing carpal tunnel release code, which the descriptor actually fits but it doesn't. It's a surgical approach and it doesn't pay in an office setting.

Bob Paulson: 11:41

Both the endoscopic and the open codes have been around for thirty years, and so there was little interest on the part of the society in modifying the existing code, and so the only way to develop a CPT or a procedure code that will allow doctors get paid in the office was to go get a new code. And we at the time didn't have the clinical data to meet the requirements either for coding or coverage.

Bob Paulson: 12:10

That's the thing that you always have to keep in mind is it's one thing to have enough data for either FDA clearance or getting a CPT code, but then you have to have enough data to support coverage. And so we started this process back in 2022 of developing the portfolio that would satisfy all three of those in the course of the last couple years. I guess it was last year we actually introduced a second generation device where we made some significant improvements both in terms of taking or making the device even more user friendly.

Bob Paulson: 12:43

That's a form factor, things that you'd learn. We've learned over the first 45,000 procedures. The device worked exceptionally well, but as always, it was a first generation device and there's opportunities to improve. Then we also took a significant, by being able to be much more specific, we took significant costs out of the device. So cut about 40% of the cost of goods, reduced cost of goods by about 40%, which gave us now a very nice attractive gross margin for the product.

Bob Paulson: 13:12

So the last four years has been, and again one of the requirements as you know Scott for a new CPT code is widespread adoption. So you have to be commercializing in order to hit that somewhat arbitrary threshold that's decided on a case by case basis. So we kept the commercial organization flat over the three years, so twenty three, twenty four, twenty five kept the organization flat at about between eight and ten territories. And as the new code was approved in the fall of twenty four, it went through the REC process in '25, and it went into effect in January 26. Concurrent with that, we've now had the first expansion of the sales force with a new code and are going through the process of ensuring that the coverage is consistent across the country and beginning to ramp adoption utilization.

Scott Nelson: 14:06

You certainly climbed the reimbursement mountain, the coverage and reimbursement mountain.

Bob Paulson: 14:10

We've climbed it, now we have to make sure that we can stay on top of it, right? It's a process that is opaque through everything. It's opaque going through the CPT process and the REC process, and it's opaque from a payer standpoint as you have to be able to track claims or claims being paid. A lot of doctors with a new code, their inclination based on experience is to treat a few patients and see if they get paid, but that's a three to four month process typically between time the we do procedure claims submitted and the payment comes in the door. We needed to accelerate that.

Bob Paulson: 14:49

We're very confident Medicare patients would get paid, but Medicare is probably, depending on the state, thirty to forty percent of patients. This is a condition that affects a lot of working age people, so we needed to make sure that the docs would continue to treat patients commercially and submit claims because that's the only way you know if the payers are paying. We put together some creative risk sharing programs to incentivize docs to file claims through a third party reimbursement group that we're working with can submit the claims and then appeal the claims if there's any denials. Knock on wood, so far, if the industry average is 25 to 30% approvals in the first year of a new Category one code, we're running in the high 80s, six months in, but knock on wood. I mean, there's no guarantees obviously, but way better than the other end of the scale.

Bob Paulson: 15:46

So we're cautiously optimistic. Again, in large part because the reason payers deny claims typically is either it's patient selection, right? It only works for certain patients and not others and that selection criteria is not clear. It's because you don't have enough clinical data to support the new procedure, and or it's more expensive. Those are the three primary reasons why new procedures, new codes don't get paid.

Bob Paulson: 16:17

For us, this is carpal tunnel. It's the exact same. All three, both surgical approaches and our approach are all doing the same thing. You're transecting the transverse carpal ligament to alleviate the impingement, and there's no patient selection criteria involved. If you've got carpal tunnel, you've got carpal tunnel, you have to have the TCL cut.

Bob Paulson: 16:35

Secondly, in terms of clinical data, we're now sitting at 21 peer reviewed publications on 2,300 patients and 2,800 hands. And why that's important is that because of this approach that's so minimally invasive, it can be done with local anesthesia, it enables simultaneous bilateral procedures. Bilateral carpal tunnel is highly prevalent. Over fifty percent of patients suffer in both wrists of the condition. So that's great on the patient selection, the data to support the patients.

Bob Paulson: 17:11

And then lastly, because this can be done as an office procedure, it's done in the lowest cost site of care. The health economics are positive compared to surgical procedures. You're not using an OR suite, you're not using anesthesia, you're not using a PACU post procedure, and you're not using rehab services post procedure for rehabilitating a deep incision. So we're on the right side of the clinical equation, we're on the right side of the cost equation, and that was the intention back four years ago to get there, but it's a long, it's a big investment to do all those studies. We just completed enrollment of the largest carpal tunnel, comparative carpal tunnel study ever done in The United States.

Bob Paulson: 17:55

It was over fourteen hundred patients. There were three arms, one was a ultrasound guided arm, and then there were two comparator arms, one open surgical procedure, one endoscopic. And we'll end up with probably six or seven publications out of that. But the first bolus of data, two comparator arm studies, and then the ultrasound guided arm is out. The Medicare age patients is coming, the site of service papers coming, and then we've got a health economics paper that will be coming, all four of those will be coming in the back half of the year.

Scott Nelson: 18:28

Yeah, see a lot of that work over the past, call it, handful of years really kind of now servicing coming to fruition. Such a huge congrats to your team. I mean, it's such a huge lift. Not just in terms of capital, but just the sheer amounts of work that goes into establishing a new CPT code.

Scott Nelson: 18:45

When you think about that, and maybe we'll get into this a little bit more detail, but if I'm new to this world, right? Like say for example, I've worked in with technologies that mostly utilize an existing code, General framework for other founders, CEOs that are maybe facing the same thing that you did when you first came into Sonex, is it five years? Is that kind of a rough number? Is it three to five years, something like that?

Bob Paulson: 19:07

It used to be you could get a $510k through commercialized and get to 35 or 40,000,000 in revenue on 40 to 50,000,000 of invested capital in three to five years. And it's just really hard to do that now because if you think about the process of getting, if you have to get a new CPT code, So obviously, I mean you start at the beginning and one of your first questions has to be, you know, size the market, right? What's the unmet need? What's the accessible market? Blah blah blah.

Bob Paulson: 19:36

But then the next question needs to be, okay, does this fit within an existing code? And if so, that's one criteria, but if it doesn't, and you're going need a new code, then you really need to flesh out what's required to get FDA clearance, how much of that is leverageable and or what's going to be required to get a new CAP1 code, and then once that code is issued, what data is going to require for payers to pay. So it's really a three leg process. You need to design to the extent that you can, those early studies where the data not only meets the FDA requirements, but it meets what's going to be required for CPT and what's going to be required for payers. That adds complexity to the study, right?

Bob Paulson: 20:24

Because a lot of things that and understand if there's going to be comparative data, does that mean if you don't have to do an RCT for a randomized controlled trial for FDA, are you going to have to do one or are going have to do some other kind of comparative study to get the CAT one code which has a requirement for a level one or a level 2A study. That's going to go to how much capital you're going need, how much time it's going to take, what kind of follow-up.

Bob Paulson: 20:51

If you're in a situation where FDA is going to require one year follow-up, then presumably whatever development time it takes you to start that study, that's typically a minimum of eighteen to twenty four months from the time you start the study, when you get one year data published, and then assuming you can develop an argument that meets widespread use without commercializing first, then the process of getting a CPT code in the year that the code is approved. The following year is the RUC process and it doesn't go into effect until January or the year after. So if you have to get a new code, it's gonna be probably five to seven years.

Scott Nelson: 21:33

Yeah. Okay. Yeah. That's a good framework for those that are kind of staring down maybe something similar. So I wanna use the next half hour to kind of get into some functional topics and really kind of try to glean some key lessons learned that you've picked up on the past couple of decades running a fair number of startups.

Scott Nelson: 21:48

But again, everyone listening, we'll link to it in the full write up on Medsider, Sonex Health is the website S O N E X health, just as it kind of sounds, sonixhealth.com. I highly encourage everyone to kind of check out the technology if you're certainly a provider, but also if you're a patient or know someone that's suffering from carpal tunnel, like this is definitely something that you should consider.

Scott Nelson: 22:07

So Bob, first question I have for you is kind of zooming out and thinking about all of the startups that you've been involved with, right, for quite some time now, multiple kind of exits under your belt as well. Are there like a couple of key things that you've really focused on integrating into Sonex over the past handful of years, whether it's that's previous mistakes or things that you did right over the last years that you really kind of really try to instill and integrate into Sonex?

Bob Paulson: 22:33

I think you always start with making sure you understand what your investors expectations are, what their time horizons are going to be. So where they are in their fund life. So you have a business plan and you lay that out and it's going take x number of years. If it's a ten year fund life, where are they in their fund life? You've laid out your capital requirements.

Bob Paulson: 22:58

Do you start with one investor? Do you need to put a syndicate together in the beginning that can take you all the way through the process? And then in parallel with that, understand what the market requirements are in terms of how strategic you're looking at this market. If you have a what's a good example past few years right if you had another TAVR design, then you knew it was an arms race on IP, and so therefore if you could prove that it worked let me think about six that Medtronic acquired they acquired it on patient data of less than 10 patients. So they just had to prove that it worked, and because of where the IP was, that was enough to get a strategic to move.

Bob Paulson: 23:42

That's the exception. Normally, there are only a handful of companies that will acquire early stage tuck ins. If you have a product that will fit in somebody else's bag, then through discussions, whether it's with bankers or folks at the companies that are interested in the market opportunity, what do they need to see to be able to tuck that in and how does that fit with your investors' interest? Or if their expectations are a higher return, then you probably have to go through commercial expansion. Then it's typically, you know, it needs to be non dilutive inside of a strategic within a year, maybe two years, depending on the market opportunity.

Bob Paulson: 24:26

And then you have to go put it in reverse and figure out what's it going to take to get there to achieve those value inflection points that will either bring in additional capital. You can't count on an acquisition. Companies get bought, they don't get sold. So you've got to be able to say here's a value inflection point and we'll be able to do a market check here and if not, then we need to bring in additional capital that's going to take us through the next stage and the next value inflection to get to the next value inflection point. So that's probably the biggest lesson and we had that long reimbursement discussion.

Bob Paulson: 25:00

That's part of it because bigger companies tend not to be they tend to be good at helping facilitate codes, but if they have to start from scratch, that's oftentimes that's an overwhelming that means they're not going to be able to generate the revenue internally until that predictable payment is there, or at least the light at the end of the tunnel is there. So that's just going to be a factor.

Scott Nelson: 25:25

Yeah. I'm not sure if you know Dan Rose, the CEO of LimFlow and E2 now, running E2 now. We were chatting about this the other day. Like, it sounds cliche, but like thinking about all the things that need to come together for a successful liquidity event, whether that's in most cases an exit in our space to a strategic, in some cases, maybe it's an IPO. There's like so many things that have to go right.

Scott Nelson: 25:46

And in your case, I think you're building even in a more challenging environment because you've got to have, you've had to do all the work that leads up to CPT, Cat 1 CPT code. And so the comment that you made earlier, like I guess out of the gate was just alignment early on, right? Thinking through like, is this a, is this a tuck in play? Right? Is this a, is this a play where I need to go generate a CPT code, to commercialize this fairly extensively? I mean, just having, like being able to kinda see five to ten years down the road, so so crucial even in those early even in those early years.

Scott Nelson: 26:18

Hey, everyone. Let's take a quick break to catch you up on Medsider courses. These eight week courses are designed to help you learn winning formulas from world class CEOs. Medsider courses cover topics like fundraising, device design and development, clinical and regulatory strategy, commercialization, and m and a. Each course covers the hard earned lessons shared by the Medtech Founders and CEOs who join our program. Medsider courses can be purchased individually or they're included at no additional cost with the Medsider All Access Pass. You can explore Medsider courses at medsider.com/courses. Again, that's medsider.com/courses. Okay, let's get back to the conversation.

Bob Paulson: 26:57

A 100%. Because, I mean, look at the public equity markets haven't been available for early stage medtech for years. That used to be a very viable option. That hasn't been the case for, I can't remember since how long, since early stage companies. There are a couple of windows, but now we're in a situation where you've got companies with $100 -200 million dollars in revenue are stacked up waiting for the markets to open.

Bob Paulson: 27:23

So you have to assume that's not going to be a viable exit strategy in the next two to three years at least, right? And then the other challenge has been, if you go back to 2008, the markets crashed in 2008, one of the challenges, so the IPO markets dried up obviously, and the large Medtech, large caps to grow, they had to do so by acquisition, right? And so you had first the big guys pretty much acquired all of the mid caps, two the 100 to $500,000,000 companies, and then you started to see the merger between the large caps. And now there's just a handful of large cap companies that are still in the M and A, and there's only a couple, Stryker and Boston, have kind of systematically grown by acquisition over the last few years. They do do tuck in deals, right?

Bob Paulson: 28:21

Not to say it doesn't happen elsewhere, but kind of a onesie twosie market specific kind of thing. So depending on the market that you're in and recognizing that you know to get inside of a large company now and get them to be a logical acquirer means you have to be on the strat plan. If you think about an annual strat planning process that concludes inside of a company in August, it rolls up to the boards in September and October, operating plans are finalized for the next year. If you're not on the strat plan, if your technology or your market is not on the strat plan and you're not there as a company, it's going to be another year typically before it's going to be considered. So again, are just considerations.

Bob Paulson: 29:05

You need to use your contacts inside of the individual business units within big companies and look at they're all fighting for capital too, right? I mean it's a capital allocation game inside of every large medtech company and so there are just lots of factors that need to be considered as you map out your path.

Scott Nelson: 29:24

Lots of things that seem like I'm nodding my head as I hear you kind of explaining a lot of this stuff, but it's like until you've kind of been through the mix, it's hard to really kind of truly understand some of these topics.

Scott Nelson: 29:35

But on that note, want circle back around to something you mentioned earlier, talking about reimbursement and the sheer amounts of data that you've collected for Sonex over the past handful of years. When you think about balancing the data that's needed to generate or to convince a physician, right? To begin to accept, to adopt this technology, use it on their patients versus something that a payer is going to get behind. Right. And you're even, you've been able to kind of get over even a higher hurdle because your mix of patients is largely private payers, right? It's not necessarily CMS. And so there's, and you've to go out and convince all of these payers to like cover the technology too. So when you think about that balance, right? What's needed for physicians versus what's needed for patients? How are you kind of thinking about that as it pertains to kind of designing some of this clinical work?

Bob Paulson: 30:17

So you go back to the condition, right? So this isn't what's a good example? It's not like I've got the next pain stimulation technology for the spine, right? And so to be able to differentiate, so I'm stimulating this nerve versus that nerve and Here's the data to demonstrate that the efficacy is equal to, better than, safer, more effective, whatever. In this case, in our case, it's fortunately more simple.

Bob Paulson: 30:44

Everybody does the same thing. Or they transect the transverse carpal ligament. So the clinical data required for clinical adoption was and is less of an issue than moving surgeons who so our biggest challenge has been hand surgeons are not trained in ultrasound, right? They cut, they open up, they look, they visualize, they do whatever they're going to do, right? So whether it's nerve procedures or repairing broken bones, you do it through an incision, you visualize.

Bob Paulson: 31:19

They all know the anatomy, but we have to teach them ultrasound. How do you recognize the anatomy you already know in two d black and white? Now you get three d by doing the short view and long view with the transducer, but now you're interpolating that in your head. And what's been fascinating is you see the older more experienced surgeons struggle with that whereas the young surgeons who grew up on video games and gaming, I mean using two hands to, it's they pick it I mean right there you show a resident that's going oh okay boom boom boom that's easy right they're not going do a procedure for two or three years because they're in residency, but there's a learning curve.

Bob Paulson: 32:00

So education and training has been a key part of what we have to do and then back to reimbursement. Funny thing if docs don't get paid they don't want to do the procedure, right? So to be able to convince them to put the time in to train on ultrasound and do this procedure, they have to know they're going to get paid because the first part of our company, the majority, over 70% of procedures were done in hospital procedure room settings, that means you had to go through VAC committees, right? And so that adds time to that so no surgeon's going to say okay yeah I want to spend the time I'll invest the time to learn ultrasound until I know that the VAC is going to approve this as a new product or procedure and so it's more than just a little bit of chicken and the egg because how hard are they going to advocate if they haven't really done the procedure yet, right?

Bob Paulson: 32:57

To say this is better for the patient, they get it and it happens, but it made the timeline between I'm interested and I'm doing commercial procedures much longer than is viable long term, right? So now that there's predictable payment, the biggest time challenge has been now convincing surgeons who have done almost all their procedures in hospital or ASC settings, surgical suites, now getting comfortable doing it in the office. Now a lot of other specialties have done this and our team has done it in ENT, we did it in urology, so it's not cut and paste, but you know what needs to be done.

Bob Paulson: 33:39

But then it's getting first the physician comfortable and then getting their staff comfortable that they can do these procedures in an office procedure room and it means they have to change their normal flow, it means they have to change how they schedule, and so this is really practice development. It's not just a matter of, hey do this in the office, they don't know how to do it. They don't know how to set up the supplies required for this are minimal.

Bob Paulson: 34:07

You still have to package it. You have no OR Suite. I mean if you're in the OR somebody takes care of all that, right? By doing it this way we're taking over 80% of the waste in terms of sterile sheets and sterile drapes and this and that and the other thing. We're taking all that out of the equation and it works really really well, but you have to teach them and it just takes time so that means your field organization has to be able to be there to support and get the staff comfortable in using ultrasound.

Bob Paulson: 34:38

If you're in an office that we're in a practice where there's staff turnover or there's not staff dedicated to a physician, then that's something else that they have to do is because now you're teaching the PA or a mid level how to run the dials on an ultrasound machine and the doc has a device in one hand, a transducer in the other, someone still has to you know take the picture for the patient record on the file and it's just so it's just training. It's not, I guess, not rocket science but it's a consideration.

Scott Nelson: 35:06

Yeah. Just hearing you kind of riff on this topic. The technology has to be compelling enough, right? It has to be super compelling enough to convince all of these kind of downstream things to put all of these downstream kind of things together. Right?

Scott Nelson: 35:18

And so, you know, hearing you explain the technology at the outset of this episode, it's like, it seems like a no brainer, right? It's like kind of same underlying thing that you're trying to do as a physician, but like way more minimally invasive, way faster with pretty easy recovery. Now they get paid to do it, etcetera. Should be no brainer, right? But then thinking through like all of these workflow related challenges too, it's like, you've really got to have a compelling technology that gets people to lean in to willing to kind of change a lot o things.

Bob Paulson: 35:49

You hit on a really key topic, Scott, because you need motivated physicians, So part of what our team has to do is we can't afford tire kickers. That mean the time it takes to get through training, the amount of time that we have to invest in terms of multiple visits to a site to help the doc get up to speed, make sure they're there, we can't do it. Doc said, well let me treat three to five patients and see how they do. No, that's going to be someone saying, thank you, glad you're interested, we'll come back when you're more interested because we have to be willing to invest in the process to be able to do it and a 100% of the time if you go to a high volume surgical carpal tunnel release surgeon and say you know here's this minimally invasive approach, they'll say all my patients all do just fine. Okay and they say that because they never see the patients back right?

Bob Paulson: 36:42

They do the surgery in the patient and when the patient has to come back a week, ten days later to have their sutures removed, doc doesn't see them usually. The mid level or the PA sees them, right? Takes the sutures out and then the patient's, Oh I'm having all this pain and okay well here's a physical therapy appointment. So then you go to weeks of physical therapy and you're only going to see a doc again if there really is an issue and the complication rate is not that high with the surgical procedures. So it's really it's a patient driven matter and payers don't care, right?

Bob Paulson: 37:17

The fact the patients are back to activities and in three to five days back to working activities in three to five days they don't care about. All they care about is the cost. So you have to appeal, that you appeal to the doctor is first of all that your patients are going to do a lot better and they're going be a lot happier so when they have to come back and have an elbow or shoulder or if you're an integrated practice, a hip and knee done, I got back to my activities in two to three days, this is the practice to go to. And then they have to be able to wrap their heads around the economics of they can in fact generate more net revenue by doing this in the office than going over to an ASC or a hospital outpatient where they're just being paid on their work RVUs.

Bob Paulson: 38:04

So that's the third leg of complexity for our sales team is you've got to understand how that doc's complicated and as more and more practices are being acquired by PE firms and hospital systems, now you have a hospital system based employee, you need to figure out are they flat salary? So Kaiser, Kaiser is an example, they're paid a flat salary. They have no incentive to do more or less. All they're incentivized to do is do what's in the best interest of patients. And so the fact that they can make more money doing the office, they don't care. If you're at a hospital based employee and you get paid based on work RVUs, then you're going be adding up. Now is that your base or is that just your incentive or is that for next year? And so you've got to kind of craft the story. You need to understand the economics of the doc and the practice and then shape your rationale or your advocacy about why they should invest the time to do this and how it's going to impact their compensation.

Scott Nelson: 39:06

Is there like a direct to patient kind of aspect of this or are you primarily relying on these high volume clinics in a local geography to kind of do a lot of that kind of take the baton and become, know, they want to already be known for like the most patient friendly practice?

Bob Paulson: 39:21

It always starts with, what's a good example, think about Inspire. It always starts first with the docs, right? Until you, it's a pitcher catcher situation, until you've got the catcher set up in a market so that if you go direct to patient on a broad basis, you advertise that if the patient walks into the office, they're going to get an ultrasound guided procedure. The last thing you want to do is pay money to draw patients or to drive patients in. It's like any kind of advertising.

Bob Paulson: 39:51

If you advertise Cheerios and you go to the grocery store and the Cheerios are not on the shelf, you're gonna buy something else, right? You go into a practice that maybe one doc's doing the procedure but the other three hand surgeons are not. Patient comes in, gets assigned to whichever doc has an opening and they don't offer it. So it's a timing issue. That said, where we do have practices that are set up, if the market opportunity is the fact that eighty percent of patients who need a surgical carpal tunnel release procedure sitting on the sidelines, Doc, that means eighty percent of your patients that you could do this on or so and they always say, Oh no, no, that's not my patients all do fine and then you show them the data, you show them acute EMD data that shows that they had here are all the referrals that came into them from carpal tunnel and here's the number of procedures they did.

Bob Paulson: 40:40

So where did all those other patients go, doc? The answer is they're waiting for a procedure, something they're not willing to do a surgical procedure. So then we can help them with we have a number of programs where we'll do direct to patient within their practice, and the response rates of these things have been absolutely amazing. It is not at all unusual to have fifty to seventy five patients show up for a physician education seminar, right? Why?

Bob Paulson: 41:09

Because they're already diagnosed. They already know they have carpal tunnel, right? And of those patients that show up, it's very common to see fifty to seventy five percent sign up for a procedure that night. They'll commit, they'll go on a schedule, and the doc then is just set up depending how many days a week they're doing this, they've just filled their pipeline for the next two, three, four weeks.

Scott Nelson: 41:30

Yeah, it's one of the nice things I guess about solving such a glaring need, right, in carpal tunnel. It's like if you have it, it's so terrible and so painful. It's like pretty much do anything to solve for that, right? Especially if it's like something pretty novel and requires way less recovery time, etcetera. So yeah, a good explanation. I like the pitcher catcher analogy that you used too because that's so crucial if you've got, if you're working on a technology that does have this kind of direct to patient element.

Scott Nelson: 41:59

I know we don't have a ton of time left, I want to get your take on capital strategy, right? Because you've raised a lot of capital over your career. Seen a lot of the ebb and flow, right? And you touched on some of this earlier from like the how the market has changed kind of post kind of 2008 timeframe, etcetera. So if you're trying to coach up a newer CEO on how to go from kind of maybe some pre seed money to now raising from institutional investors in their series A or series B and beyond, are there a few things that you typically kind of advise other newer, younger CEOs?

Bob Paulson: 42:28

Yeah. I mean, first of all, back to your business plan, you have to be realistic about, I mean, people will say, know, this will be a $100,000,000 business in three years. You're gonna instantly lose credibility because very few of those animals exist anymore. And so being able to map out through regulatory, clinical, commercial milestones what are going to be the milestones, the events that will really move the needle from a valuation standpoint, and realistically what's the capital going to be required to get there.

Bob Paulson: 43:03

And then you know make sure that you're asking when you're meeting with an investor what's the size of their fund, how many portfolio companies are in their fund, what's their normal bite size, what are they willing to invest in total initially, and then that gives you an idea of am I going have to put together a syndicate because of both the amount of capital that's going be required for each step or what's going to be required over the course of the next three to five years.

Bob Paulson: 43:33

I think three to five years is a realistic timeline to be looking at for capital and making sure that to the, I mean, beggars can't be choosers. Sometimes, you have to take the investors that are interested, but you know, understanding your investors, the culture. Talk to their other portfolio company CEOs. What's worked? What hasn't worked? What do they like?

Bob Paulson: 43:55

What don't they like? Again, it's not a one size fits all situation, but you want your investors to be your partners in the journey, and are they on their eighth fund, or is there, this is their first fund. If they're a $100,000,000 fund, that means they're only going to be able to invest smaller amounts and maybe that's okay, depending on where you are, early stage, Series A, but you're starting to see more you know for a while the big the larger funds were moving away from A and B investing they want to invest late stage everybody wants everybody wants a completely de risked company right, VCs are acting like PE firms, more and more you're starting to see because of the impact, downward pressure in valuation in later rounds that's become the norm, you see more and more investors wanting to put together a syndicate up front where they can protect themselves from themselves. As you move out into the later stages, you've got the capital around the table. I guess the other thing advice that you give is keep your valuation expectations realistic in terms of what it's going to take.

Bob Paulson: 45:12

No one ever died from dilution. If you're a founder, you die because you don't get capital, and so an expectation that your company's worth $30,000,000 when you don't have any clinical data, probably not realistic. So just be realistic upfront and it's always a trade off, mean there's no right or wrong, it's a situation by situation deal, but be realistic.

Scott Nelson: 45:34

Yeah. There's no doubt. I think for like newer founders or, you know, that are maybe taking on the CEO role for the first time, understanding that dilution isn't isn't the the enemy here, right? Mean, it's like a necessary I mean, it's necessary evil, but like understanding that your investors need to win here too. Right? I mean, there's like with any relationship, there's gotta be a win on both sides.

Scott Nelson: 45:53

And if they're not winning, probably isn't, you're probably not setting yourself up for success. And so, yeah, I like your idea. Dilution is, it doesn't mean, no one died from dilution, right? It doesn't mean death, right? Maybe some expensive water if you need some water to survive, maybe kind of expensive, it's just as part of the game.

Scott Nelson: 46:12

So I know we've got only got a few minutes left. Wanna get to the rapid fire portion of this interview. But again, everyone listening, sonoxhealth.com is a website. We'll link to it in the full write up on Medsider, but sonexsonixhealth.com. Highly encourage you to check out the technology and the company. It's really, really cool stuff, really cool space, especially with something so obviously needed, right, for carpal tunnel as we've kind of chatted about throughout the last hour here.

Scott Nelson: 46:35

So with that said, Bob, rapid fire portion of the interview here. Feel free to kind of answer rapid fire portion if you want to expand a little bit. That's totally fine too. But when you think about take us out to kind of mid twenty twenty seven, a year from now, what are you most excited about?

Bob Paulson: 46:47

Demonstrating adoption and utilization, but adoption, I mean, to get to the growth levels that this needs to get to, we've got to accelerate docs through the training pipeline and increase the number of physicians doing the procedures. That's going to come with predictable payment. We've got the other things that they would worry about in terms of clinical data and outcomes are there. And so now it's just driving adoption and making sure that the payment's consistent.

Scott Nelson: 47:14

Yeah, yeah. So much work over the past handful of years to get to this point. So it'd be fun to kind of watch your team execute over the next year. Let's say we're in maybe Minneapolis, we're, you know, just finished up a dinner near Lake Minnetonka or something like that, right? What's the one lesson that you want every, you think every Medtech entrepreneur should really understand?

Bob Paulson: 47:36

Networking, making sure that you're building a support network of, because as a young entrepreneur, you're not going to know. You won't have the ability to look around the corners because you haven't been to the corners yet. Surround yourself with people who can be colleagues and mentors within different areas of expertise and reach out for help. There's no such thing as a dumb question. People want to help the next generation to be successful. Build and use that network.

Scott Nelson: 48:10

Yeah. You're a good example of that, right? Willingness to kind of come on the program two times now, right? And share a lot of super helpful lessons learned. All right, last question. Anything that you'd whisper in the ears of the younger Bob Paulson, if you could go back in time.

Bob Paulson: 48:25

Don't be afraid to make mistakes. I mean, there's no such mistake. If you keep making the same mistake again and again, that you're not learning your lesson, but know that whatever you think is going to happen in the next six months is going to change, whatever expectations you have, and just be prepared for that. And when something doesn't work, you know, fail fast. Be prepared to pivot and have a plan B already kind of thought out, if this doesn't work, what am I going do?

Bob Paulson: 48:53

Surround yourself with build teams of people who are culturally aligned, who have the same vision and values, but that are smarter than you. There's no such thing as you need really talented, experienced people who also have a risk profile that fits the business that we've chose to get into, which is full of uncertainty.

Scott Nelson: 49:18

No doubt. No doubt. It's a good way to sum it up. And I couldn't agree more with finding not only alignment in terms of finding smart people, right? But also those that are willing to kind of take a little bit of risk alongside you. So, Bob, I thank you enough for coming on the program twice now. Has been fun to catch up, especially to learn a little bit more about Sonex Health too.

Bob Paulson: 49:38

Well, thanks Scott. Appreciate the opportunity. Great to see you.

Scott Nelson: 49:40

Yeah, great to see you again. I'll have you hold on the line here, but for everyone listening, you made it this far. Appreciate your attention as always. Again, sonexhealth.com is the website. Link to the full write up on Medsider. If you want to read a lot of these key critical lessons learned that Bob shared throughout the last hour, those full write ups on Medsider allow you to kind of capture or they typically do a decent job of capturing a lot of this in kind of the written form. So thanks everyone for your attention as always until the next episode of Medsider goes live. Everyone take care.

Scott Nelson: 50:06

Hey. It's Scott again. One quick thing before you go. You see, I love bringing you insightful conversations with the best founders and CEOs of medical device and health technology startups. Here's the thing, I'd be super grateful if you could help me reach even more ambitious doers who share our passion. So if you found value in this podcast, if you found yourself nodding your head while listening, or if you simply enjoy what we're doing with Medsider, please take a moment to leave us a review. It's super easy. Just open your Apple Podcast app or the podcast app of your choice, search for our show, and scroll down to the ratings and review section.

Scott Nelson: 50:34

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